Geographic Specialization and Trucking Freight (Job Market Paper) [draft coming soon]
Abstract: How will self-driving trucks transform U.S. interstate trade? I argue that human drivers' preferences to return home generate geographic specialization in the freight market, and self-driving trucks would eliminate this "home bias." I build a model of trucking carriers making dynamic decisions about where to work, given that they have a preference for being at home. A large home bias increases the value of driving places that are likely to bring one home and increases the value of taking time off at home. Using trucking freight transactions and highway inspections, I estimate the model parameters and find that carriers value being at home at $70 per day. In a counterfactual where I eliminate home bias, carriers become more willing to drive to driver-poor states, and overall driving increases as carriers spend less time off. The increased supply of carriers lowers import and export prices overall, and especially for driver-poor states. Compared to a full automation counterfactual which also captures lower per-mile costs and extended range, eliminating home bias explains about one-quarter of the potential decrease in overall freight prices.
From Market Making to Matchmaking: Does Bank Regulation Harm Market Liquidity? (with Gideon Saar, Jian Sun, and Haoxiang Zhu) [SSRN]
Abstract: Post-crisis bank regulations raised market-making costs for bank-affiliated dealers. We show that this can, somewhat surprisingly, improve overall investor welfare and reduce average transaction costs despite the increased cost of immediacy. Bank dealers in OTC markets optimize between two parallel trading mechanisms: market making and matchmaking. Bank regulations that increase market-making costs change the market structure by intensifying competitive pressure from non-bank dealers and incentivizing bank dealers to shift their business toward matchmaking. Thus, post-crisis bank regulations have the (unintended) benefit of replacing costly bank balance sheets with a more efficient form of financial intermediation.